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CIRCULAR No

CIRCULAR No. 62/1999/TT-BTC OF JUNE 7, 1999 GUIDING THE MANAGEMENT AND USE OF CAPITAL AND ASSETS AT STATE ENTERPRISES

Pursuant to Decree No. 59/CP of October 3, 1996 of the Government promulgating the Regulation on financial management and business cost-accounting at State enterprises;

Pursuant to Decree No.27/1999/ND-CP of April 20, 1999 of the Government on amendments and supplements to the Regulation on financial management and business cost-accounting at State enterprises, issued together with Decree No.59/CP of October 3, 1996 of the Government;

The Ministry of Finance hereby guides the management and use of capital and assets at State enterprises as follows:

I. GENERAL PROVISIONS

1. This Circular shall apply to State enterprises stipulated in Article 1 of the Regulation on financial management and business cost-accounting, issued together with the Government�s Decree No.59/CP of October 3, 1996.

2. Assets of a State enterprise include: fixed assets and long-term investments, current assets and short-term investments, created from the State�s capital and other capital sources.

All assets rented, borrowed, kept in custody, for processing, agency sale or bailment by an enterprise are not assets of its own.

3. The legal capital of a State enterprise is the minimum capital required by law for the establishment of a State enterprise in each business line.

4. The statutory capital of a State enterprise is the State-owned capital stated in such State enterprise�s statute. The enterprise shall have to publicize its statutory capital and any changes therein.

5. The State-owned capital at an enterprise is the total value of assets that the enterprise is managing and using minus (-) its payable debts at the time of reporting.

6. The capital under a State enterprise�s management and use right shall include: its payable debts and State-owned capital;

The payable debts shall include short-term debts, long-term debts and other debts.

7. The Chairpersons of Managing Boards (for enterprises with managing boards), the directors (for enterprises without managing boards) shall have to work out regulations on capital and asset management in order to concretize the provisions of this Circular for their respective enterprises and with a view to efficiently using capital for business, preserving and developing the State�s capital and fulfilling the debt payment obligation.

8. The State enterprises shall take limited liability for their business activities before law and creditors within the amount of State-owned capital at such enterprises.

II. INVESTMENT AND ALLOCATION OF CAPITAL TO ENTERPRISES

1. Capital investment:

1.1. The State shall invest capital in the newly- set up State enterprises in important branches and domains:

- The newly established State enterprises shall have to strictly comply with the current order and procedures stipulated in the Government�s Decree No. 50/CP of August 28, 1996 on the establishment, re-organization, dissolution and bankruptcy of State enterprises.

- When deciding the establishment of new enterprises, the competent agencies shall have to ensure that the capital actually available at such enterprises at the time of their establishment is not lower than the legal capital level set for each business line in the Government�s Decree No.50/CP of August 28, 1996.

1.2. In the course of business, on the basis of the production and business efficiency, the socio-economic development tasks assigned by the State to enterprises as well as the State budgetary capacity, the State shall consider additional investment in enterprises in case of necessity.

2. Allocation of capital to enterprises:

The State enterprises shall be allocated State-owned capital available thereat after being inspected and appraised according to the current regulations of the State.

2.1. The amount of capital to be allocated to an enterprise shall be determined as follows:

a/ For a newly established enterprise, it is the amount of State�s capital stated in the final account settlement of capital construction investment capital, which is transferred for production and business; the statutory capital supplemented by the State and other capital (if any) under the State ownership.

b/ For operating enterprises and re-established enterprises (after merger, division or splitting), it is the amount of State-owned capital available at such enterprises or at the member enterprises, which have been inspected and appraised according to the current stipulations of the State.

Before the capital allocation, an enterprise shall have to clearly determine its financial problems (the redundancy, deficiency, loss, damage, poor quality or degradation of assets; assets, which are unsaleable, slowly circulated, no longer in use or awaiting liquidation; bad debt; accumulative losses; expenses without sources to make up for and other losses of assets), the causes therefor and responsibility of the persons related to the said problems for handling them according to the current regulations. For financial problems resulting from the implementation of the State�s policies, enterprises shall have to report them to the competent State agencies for handling. The problems which cannot be handled yet shall be clearly stated in the capital-allocation dossier. A re-established enterprise or an enterprise which other enterprises are merged with shall inherit the rights as well as interests and fulfil all obligations of State enterprises before merger, consolidation, division or splitting.

The capital amounts which increase as the results of enterprise income tax exemption or reduction during the implementation of the Law on Domestic Investment Promotion or the return of State budget remittances under decision of the competent State management agency shall all be considered the capital of State budget origin.

The above-said capital increase amounts as well as the amount of capital additionally allocated by the State after the capital allocation shall all be accounted into the amount of capital allocated by the State to the enterprise.

2.2. The capital allocation shall be conducted within 60 days after an enterprise is granted the business registration certificate. For State corporations, within 30 days after receiving the capital, they have to organize the allocation of capital to their member enterprises. The total amount of capital allocated to a corporation�s member enterprises (independent and dependent enterprises) must not be lower than the amount of capital allocated by the State to such corporation. Within 15 days after completing the capital allocation to its member enterprises, the State corporation shall submit a sum-up report and a capital hand-over record to the financial management agency and the head of the agency that has decided the establishment of enterprises.

2.3. The Minister of Finance or his/her mandatary shall be the person who hands over the capital to State enterprises. The chairmen of the managing boards, the general directors or directors (for enterprises with managing boards), the directors (for enterprises without managing boards) shall be the persons who sign documents to receive the capital. For enterprises being members of a State corporation, the person who hands over the capital shall be the corporation�s general director and the persons who receive the capital shall be the directors of the member enterprises.

For State corporations established under the Prime Minister�s Decisions No.90/TTg and 91/TTg of March 7, 1994, the capital hand-over must be witnessed by representatives of the agencies that have decided the establishment of such enterprises.

III. CAPITAL MOBILIZATION

In addition to the State-invested capital, State enterprises shall have to mobilize capital by themselves in different forms: issuing bonds and/or shares, borrowing capital, receiving capital contributions or other forms, for business development and shall take self-responsibility for such capital mobilization. The capital mobilization must not alter an enterprise�s form of ownership and must comply with the current provisions of law.

For State enterprises being commercial banks or other credit institutions, the capital mobilization must comply with the stipulations of the Law on the State Bank and the Law on Credit Institutions as well as the legal documents guiding the implementation thereof.

1. Domestic capital mobilization:

- State enterprises shall be entitled to issue bonds to mobilize capital for business development in accordance with the provisions of the Government�s Decree No.120/CP of September 17, 1994 on the issuance of State enterprise bonds and Circular No.91/TC/KBNN of November 5, 1994 of the Ministry of Finance as well as other current provisions of law.

- Enterprises shall be entitled to sign business cooperation or joint venture contracts with domestic organizations and/or individuals in order to supplement their business capital.

- Enterprises shall be entitled to borrow capital from credit institutions (commercial banks, financial companies�), other enterprises and individuals (including their workers and employees) for development investment.

On principle, the interest rate for capital mobilization in form of borrowing capital or issuing enterprise bonds shall be the actual interest rate, which must not be higher than the ceiling interest rate set by the State Bank of Vietnam for credit institutions. On this principle, the capital mobilization interest rate must be written in the capital-borrowing agreement or contract and accounted into the expense for the enterprise�s financial activities.

2. Foreign capital mobilization:

State enterprises shall be entitled to short-, medium- and long-term loans provided by foreign organizations and individuals for business development, in strict compliance with the Regulation on the management of foreign borrowings and foreign debt payment issued together with the Government�s Decree No.90/1998/ND-CP of November 7, 1998. In special cases where the foreign borrowings are guaranteed by the State, the Prime Minister shall decide. Where the Prime Minister does not allow such, the guaranteeing organizations shall take responsibility for enterprises� foreign debts under the already signed contracts.

3. Responsibilities for use and repayment of mobilized capital:

The capital mobilization must be calculated and considered thoroughly in term of its economic efficiency. The mobilized capital shall be used only for business purposes, not for other purposes. The mobilized capital must be strictly managed and efficiently used. Enterprises shall have to repay both the principals and interests in strict compliance with their commitments when mobilizing capital.

The managing boards (for enterprises with managing boards), the directors (for enterprises without managing boards) shall take responsibility for ratifying the capital mobilization plans. If a capital mobilization plan is inefficient, thus leading to the loss of assets, the managing board or the director of the concerned enterprise shall be held responsible under the provisions of Article 40 of the Government�s Decree No.27/1999/ND-CP of April 20, 1999.

The general directors or directors shall have to work out and implement the capital mobilization plans, use capital for the right purposes and fruitfully. If submitting inefficient capital mobilization plans or wrongly implementing such plans, using capital for the wrong purposes, thus leading to the loss of assets, such general directors or directors shall be held responsible under the provisions of Article 40, Decree No.27/1999/ND-CP of April 20, 1999 of the Government.

IV. MANAGEMENT AND USE OF CAPITAL AND ASSETS

A. MANAGEMENT AND USE OF CAPITAL AND ASSETS WITHIN ENTERPRISES:

1. Enterprises shall have to open accounting books and make book entry in order to precisely monitor all their existing assets and capital in strict compliance with the current regulations on accountancy cost-accounting and statistics; to honestly and promptly reflect the situation on the use of and changes in the assets and capital during the enterprises� business course.

2. Enterprises shall be entitled to use capital and funds to do business according to the principles of efficiency, capital preservation and development. Where an enterprise uses different kinds of its capital and funds for purposes other than those already specified for such capitals and funds, the refund principle shall apply. For example, if the enterprise uses the reserve funds, the reward fund or the welfare fund for business, it shall have to refund them when they are required for use.

Enterprises shall be entitled to change the structure of their assets and capital for fruitful business development, capital preservation and development.

State corporations shall be entitled to mobilize assets belonging to the State-owned capital at their member enterprises according to the following principles:

- Rationally and efficiently using such assets within the corporation;

- Not causing losses;

- The mobilization plan must be ratified by the managing board and decided by the general director; the mobilization shall be effected on the principle of capital increase or decrease.

Enterprises shall effect the fixed asset depreciation according to the current regulations.

3. State enterprises shall have to elaborate regulations on the management, preservation and use of their assets; clearly determine the responsibilities of each section and individual for the loss or damage of asset, if any.

4. Periodically and by the end of a fiscal year, enterprises shall have to inventory all of their available assets and capital; accurately determine the redundant, deficient, unsold or poor-quality assets, as well as causes and responsibilities therefor; which shall serve as basis for them to make financial reports.

5. Management of debts:

An enterprise shall have to open accounting books to monitor all debts which must be recovered from inside and outside the enterprise.

Periodically (monthly and quarterly) the enterprise shall have to compare, synthesize and analyze the situation of the to be- recovered debts; especially, the due debts, overdue debts and bad debts. For unrecoverable debts, it is necessary to determine clearly the debt amounts, the causes and responsibilities therefor as well as the handling measures. In case of subjective causes, the persons who are at fault shall have to pay compensation therefor. The managing boards, the general directors or directors (for enterprises without managing boards) shall decide the compensation levels. The difference between the loss value and the compensation value made by the involved person, if deficient, shall be made up for by the enterprise�s financial reserve fund. Where the financial reserve fund is not enough to offset the deficit, the deficit amount shall be accounted into the irregular expenditure of the period.

For those debts which actually cannot be recovered (according to the provisions of Circular No.64-TC/TCDN of September 15, 1998 of the Ministry of Finance guiding the establishment and use of the reserves for price decrease of unsold goods, bad debts and devaluation of securities at State enterprises), enterprises shall account such debts into their business costs and at the same time continue monitoring the debts on accounting books (with accounts outside the accounting balance sheet) and regularly urge the debt recovery. The money gained from debt recovery shall, after covering the debt-recovery costs, be accounted into the enterprises� irregular revenue.

The managing boards, the general directors or directors (for enterprises without managing boards) shall take responsibility before the State for the enterprises� to be-recovered debts. Depending on the seriousness of the violations, if the debtors cannot fully repay the debts or are incapable of repaying their debts, the creditors, who are at faults, may be administratively sanctioned, pay material compensation; if a crime is formulated, they shall be examined for penal liability.

6. Leasing, mortgage, sale and liquidation of assets:

6.1. Leasing, mortgage of assets:

Enterprises shall be entitled to lease the assets under their management and use right to domestic organizations and individuals in order to raise the use efficiency and increase their revenues, but shall have to monitor and recover such assets when the leasing term expires.

For the leased assets, enterprises shall still have to make asset depreciation according to the prescribed regime.

Enterprises shall be entitled to pledge, mortgage or guarantee assets under their management and use right at credit institutions in strict compliance with the order and procedures prescribed by law.

Enterprises must not pledge, mortgage or lease those assets which they have borrowed, rented, kept in custody, pledged or mortgaged from other enterprises, without the consent of the asset owners.

For assets being the entire main technological line of an enterprise as defined by the agency in charge of economic-technical branch, the leasing, pledge or mortgage thereof must be permitted by the agency that has decided the establishment of that enterprise.

6.2. Sale, liquidation of assets:

a/ Sale of assets: Enterprises shall be entitled to sell redundant and technically obsolete assets in order to recover capital for use for more efficient business purposes;

For assets being the entire main technological line of an enterprise as defined by the agency in charge of economic-technical branch, the sale thereof must be approved in writing by the agency that has decided the establishment of that enterprise.

b/ Liquidation: Enterprises shall be entitled to liquidate assets with poor quality or assets which have lost their quality; irreparable obsolete and damaged assets; technically obsolete assets, which are no longer in use or are inefficiently used and cannot be sold in status quo. For assets being the entire main technological line of an enterprise as defined by the agency in charge of economic-technical branch, the liquidation thereof must be ratified by the agency that has decided the establishment of that enterprise.

When selling or liquidating its assets, an enterprise shall have to set up a council for evaluation of technical conditions and value of those assets. The assets for sale must be auctioned and publicized. If the assets are liquidated in form of dismantlement or destruction, a liquidation council must be set up by decision of the general director or director of the enterprise.

c/ The difference between the revenue from the asset sale or liquidation and the assets� remaining value reflected on accounting books as well as the sale or liquidation costs (if any) shall be accounted into the enterprise�s business results (other revenues).

7. Handling of asset losses:

All losses of assets of enterprises must be recorded in order to determine the loss value, the reasons and responsibility therefor. If:

7.1. The asset losses are caused subjectively by collective(s) or individual(s), such collective(s) or individual(s) shall have to pay compensations therefor as prescribed by law. The managing boards or the directors (for enterprises without managing boards) shall decide the compensation levels and take responsibility for their decisions.

7.2. The assets have been insured, the concerned insurance organizations shall have to pay compensation to enterprises for any damage, losses or deficiency of such assets under the insurance contracts.

7.3. The loss value, after being made up for by compensations from collective(s), individual(s) or insurance organization(s), is still deficient, it shall be offset by the enterprise�s financial reserve fund. If the enterprise�s financial reserve fund is not enough to cover the deficit, the deficit shall be accounted into the irregular expenditures of the period.

In cases where asset losses are caused by natural calamities or enemy sabotage, which cannot be overcome by enterprises themselves, the managing boards or directors of the State enterprises (for enterprises without managing boards) shall have to work out plans to handle such losses and submit them to the financial agency. After receiving a proposal from the agency that has decided the establishment of the enterprises, the financial agency shall decide the handling of the said losses or report them to the Prime Minister for deciding the handling.

After handling losses, the enterprise shall have to modify its accounting books in line with the handling decision.

8. Re-appraisal of assets:

Enterprises shall be entitled to re-appraise their assets and make cost accounting of capital increase or decrease with the difference from the re-appraisal of assets in the following cases:

8.1. Inventorying and re-appraising assets by decisions of the competent State agencies;

8.2. Effecting equitization, diversifying or changing the ownership forms of enterprises;

8.3. Using the assets to enter joint-ventures or contribute stocks (when contributing capital and receiving back the assets);

The cost-accounting of the State�s capital increase or decrease shall be ratified by the financial agency.

B. INVESTMENT OUTSIDE ENTERPRISES

Enterprises shall be entitled to use their capital, assets and land use right to invest outside according to the principle of efficiency, capital preservation and development, increase of revenue and ensuring the fulfillment of the State budget remittance task; the investment must comply with the current provisions of law. When the land use right value is used for investment outside the enterprises, the current provisions of the Land Law shall apply.

Forms of investment outside the enterprises shall include: purchase of shares, capital contribution to joint-ventures, stock contribution and other forms of investment�

For investment in joint ventures:

1. Investment in domestic joint ventures:

- For investment in other State enterprises, the managing boards or directors (for enterprises without managing boards) shall decide the plans for joint ventures.

- For investment in enterprises not owned by the State, the managing boards shall decide the joint-venture projects. For independent enterprises (without managing boards), the joint-venture projects must be approved in writing by the agencies that have decided the establishment of such enterprises.

- State enterprises are not allowed to invest in enterprises of other economic sectors, where the managers or the main owners are spouses, parents or offsprings of the managing boards, the general directors, the directors or chief accountants of such State enterprises.

2. Investment in joint ventures with foreign investors:

If using assets to invest in joint ventures with foreign investor(s) in Vietnam or in foreign country(ies), an enterprise must get approval of its joint venture project from the agency that has decided its establishment or from its managing board, if the latter is authorized by the agency deciding the establishment of the enterprise, and submit a report thereon to the financial agency within 15 days after getting the approval.

The investment in joint ventures with domestic and/or foreign investors must ensure the efficiency, capital preservation and development; with periodical reports on the joint-venture results being sent to the financial agency and the agency that has decided the establishment of the enterprise.

The managing board or the director (for enterprises without managing boards) shall appoint a person with professional skills and good qualifications to directly manage the enterprise�s contributed capital in other enterprise(s), and shall take responsibility for the efficiency of investment outside the enterprise. The management of the State�s capital at other enterprises shall comply with the current stipulations of the State.

Overseas investment: State enterprises shall be entitled to invest their capital and assets directly overseas according to the provisions of Decree No.22/1999/ND-CP of April 14, 1999 of the Government "stipulating the investment overseas by State enterprises".

C. PRESERVATION AND DEVELOPMENT OF CAPITAL

Preservation and development of capital is the obligation of enterprises in order to protect the State�s interests in term of capital it has invested in the State enterprises, thus creating conditions for enterprises to stabilize and develop their business efficiently, increase the laborers� incomes and fulfil the obligations toward the State.

Measures for capital preservation:

- Strictly complying with the regulations on the management and use of capital and assets according the stipulations of the State and this Circular;

- Buying insurance for assets under the management and use right of enterprises.

The insurance premiums shall be accounted into the enterprises� production and business costs.

- The State enterprises shall be entitled to account into their business cost and the costs of other activities the following reserves:

+ The reserve for the decrease of unsold goods� prices: is the amount for the decrease of prices of unsold supplies and/or goods, which is projected to occur in the subsequent business period.

+ The bad debt reserve: for those debts, which are expected as unrecoverable in the subsequent business period due to the debtors� insolvency;

+ The reserve for devaluation of securities in financial activities;

The establishment and use of the above-said reserves shall comply with the current regulations.

In addition to the above-said measures, enterprises shall be entitled to use profits of the subsequent year (the before- or after-tax profits) to offset losses of the previous years (for no more than 5 years), and to account a number of losses (caused by natural calamities, epidemics�) into their business costs or business results according to the stipulations of the State.

IV. IMPLEMENTATION PROVISIONS

This Circular shall replace Circular No. 75-TC/TCDN of November 12, 1996 guiding the management and use of capital and assets at State enterprises and take effect from the effective date of the Government�s Decree No.27/1999/ND-CP of April 20, 1999.

All the earlier regulations on the management and use of capital and assets at enterprises which are contrary to this Circular are now annulled.

In the course of implementation, if any problems arise, the ministries, branches and enterprises are requested to report them to the Ministry of Finance for study, amendment and/or supplement.

For the Minister of Finance

Vice Minister

TRAN VAN TA